TaxTMI 
TaxTMI 
2022 (3) TMI 114
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....as, Ms Dhanisha Giri, Mr Srikanth and Mr Shivkrit Rai, Advocates JUDGMENT (Virtual Mode) [Per; V. P. Singh, Member (T)] 1. The present set of Appeals, i.e. Company Appeal (AT) (Ins) No. 164 of 2021, Company Appeal (AT) (Ins) No. 176 of 2021, Company Appeal (AT) (Ins) No. 218 of 2021 & Company Appeal (AT) (Ins) No. 219 of 2021 have been filed against a common impugned order dated 15.07.2021, passed by Adjudicating Authority/National Company Law Tribunal, Chennai Bench, Chennai,in whereby the Adjudicating Authority has approved the Resolution Plan for the revival of the Corporate Debtor, i.e. Appu Hotels Limited. Factual Background Company Appeals (AT) (CH) (Ins) 164 & 219 of 2021 Appellant's Contention: 2. The Appellant in the Company Appeal No. 164 & 219 of 2021 herein is the Promoter and erstwhile Director of the Corporate Debtor, M/s Appu Hotels Limited, subjected to CIRP based on the Application of Financial Creditor, namely, Tourism Finance Corporation of India limited (TFCIL). Consequently, Mr Mukesh Kumar Gupta was appointed as the Interim Resolution Professional (IRP), following which, Ist Respondent, i.e. Mr Radhakrishnan Dharmarajan (R-1), was n....
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.....2020, calling for submitting claims against the corporate debtor. However, the notice for the 1st CoC meeting was given on 18.06.2020, whereas 1st meeting was held on 22.06.2020, which was in blatant disregard to Regulation 19(1) of Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulation, 2016, which mandates that at least five days notice must be given before CoC meeting. 8. As a result, the entire CIRP process was rushed and marred with procedural inadequacies. After that, R-1, who took over from IRP in November 2020, had finalised the rest of the steps hastily and failed to place proper valuation reports before the CoC. As a result, CoC voted in favour of the Resolution Plan submitted by R-2 at Rs. Four hundred twenty-three crores, i.e. much lower than the liquidation value and just 25% of the Valuation of the assets made by the registered Valuer during September 2019. 9. Appellant stated that CoC had approved the Resolution Plan of R-2 without even considering the proposal put forth by the Appellant vide letter dated 21.01.2021 and 08.03.2021 for settling all the creditors and for withdrawal of the CIRP under section 12-A o....
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....interest. Therefore, the Resolution Plan submitted by R-2 is hit by Section 166(4) of the Companies Act, 2013, which reads as follows: "Section 166 (4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company." 14. The Appellant also submitted that IInd Respondent is a Director of a Company, namely, M/s International Aviation Academy Private Limited. It is seen from the audited financial statements of the said Company from 2010-11 to 2017-18 that a sum of Rs. 12,03,000/- has been collected as 'share application money pending allotment'. Therefore, it appears that the sum has not been refunded. As such, the same shall be treated as a deposit in terms of proviso to Explanation (a) of Rule 2(1)(c)(vii) of the Companies Act (Acceptance of Deposits) Rules, 2014. 15. In the above circumstances, given Section 164(2)(b) of the Companies Act, R-2 has been disqualified from acting as a Director in any company for five years from the date such Company failed to repay the deposit and even assuming these amounts have been repaid during the Financia....
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....ebsite of IBBI. The purported Registration No. IBBI/RV/07/2019/12228 belongs to Mr Sajay Suresh Ranade, who is unconnected to the instant case. It is thus evident that the entire valuation process is tainted with fraud and malice. 19. The Appellant further contends that the IRP's public advertisement did not conform to the statutory guidelines provided under Regulation 6 of the CIRP Regulations. The Public Advertisement was neither published on the website of the Corporate Debtor nor was it published on the website of IBBI. Furthermore, Regulation 35(2) of IBBI Regulations, 2016 mandates that fair and liquidation values had to be provided to the member of CoC upon receipt of Resolution Plans. This was not done as admitted by the RP in the 5th CoC meeting. Also, The Invitation to submit Expression of Interest vide Form G itself was made on 17.08.2020, which was beyond the 75 days envisaged under Regulation 36A(2)(iii). The Information memorandum prepared by the IRP does not contain the requisite information in violation of Regulation 36(2) of IBBI Regulations, 2016. Based on the above, it is clear that the CIRP has been conducted in contravention to the IBBI Regulations and t....
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..... 19/2021 in paragraph 15 under the head 'Discussions and Findings':- "15. The Appellant's contentions about the Valuation of the corporate debtor of 1600 crores is unsupported by any evidence. The fact remains that the resolution plan amount has arrived after following the due procedure prescribed under the Code and the rules and regulations made thereunder." 25. Ist Respondent has complied with the provisions of the I&B Code and IBBI Regulations, 2016, vide Regulations 27 and 35 and in the absence of any evidence to substantiate the alleged Valuation of Rs. One thousand six hundred crores, the issue about Valuation cannot be the subject matter of the Appeal. 26. The CoC discussed the issue with regard to the valuers in its second meeting held on 06.08.2020. So far, the appointment of the third Valuer is concerned; R1 in the 6th and 7th meeting of CoC duly apprised the members about the need for the appointment of the third Valuer under Regulation 35. As a result, R1 arrived at fair and liquidation values on the average of the two closest values as per Regulation 35(C) provisions. 27. The contention by the Appellant that two valuers who were originall....
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....e before this Tribunal referring to agenda A3 of the 9th CoC meeting held on 22.01.2021, wherein the fee of Resolution Professional was to be increased from Rs. 1.50 lakhs to Rs. 2.5 lakhs retrospectively, and some malice was attributed as the same is a quid pro quo to the Approval of the Resolution Plan. At the outset, there is no pleading in this regard. The increase in the fee resulted from an email date 16.01.2021 sent by R1 to the CoC, which was much before the Resolution Plan was considered on 22.01.2021. Company Appeal (AT) (CH) (Ins) 176 of 2021 Factual Background 32. Most of the facts under the present Appeal are similar to the facts stated in the above Appeal, therefore not reiterated for convenience. 33. The Appellant under present Appeal is a listed company in BSE with more than nine thousand shareholders. The Appellant approached this Tribunal against dismissing its applications, preferred in the underlying insolvency proceedings initiated against Corporate Debtor, i.e. M/s 'Appu Hotels Limited'. 34. The Appellant submitted two claims, one as a Financial Creditor for Rs. 4,81,62,175/- and one as an Operational Creditor for Rs. 1,94,14,024/- on 03....
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..... This distinction should be based on intelligible criteria. The discrimination should have a nexus with the object sought to be achieved. Hence, before classification can be created for a purpose, it has to be shown that the law contemplates such a classification for this purpose. In the absence of a classification of a Related Party as a separate Class for payment of creditors under a Resolution plan, the same is impermissible in law and violative of the IBC and Article 14 of the Constitution of India. [Hiralal P. Harsora and Others v. Kusum Narottamdas Harsora and Others, (2016) 10 SCC 165]. 41. The Appellant also submits that In terms of Sections 43 & 44 of the Code and Regulation 35A, the RP was required first to file Avoidance Applications and obtain an order regarding the same prior to the Resolution Plan being filed. In the present case, the Forensic Audit Report regarding preferential transactions was given on 02.01.2021. However, before this could be done, the RP goes ahead with placing the Resolution Plan before the CoC for its Approval. The CoC approved the Plan on 22.01.2021. The RP files an Application on 04.02.2021 for Approval of the Plan and then on 22.01.2021mo....
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....before the Adjudicating Authority, but, unfortunately, the issue was not adjudicated upon by the Adjudicating Authority. Ist Respondents Submissions (Resolution Professional / R-1) 45. The Appellant challenged the impugned Order dated 15.07.2021 in MA/18/CHE/2021 in IBA No. 1459/2019, which is an application filed by the Appellant herein before the Adjudicating Authority. In addition, the Appellant filed an application in MA 48 of 2021 about its claim as a Financial Creditor, and by the common impugned Order, dismissed both the applications. Admittedly, no appeal has been preferred against MA 48/2021. Therefore, the Appellant cannot agitate its claim as a Financial Creditor in the present Appeal. 46. It is further submitted that the Appellant had not raised the valuation issue before the Adjudicating Authority, and its submissions were limited only to the admission of its claim and declaration that it was not a related party. Therefore, the Appellant cannot raise issues relating to Valuation in the present Appeal. 47. Respondents No-1submits that the admission of claims in CIRP is not an adjudicatory or judicial process. Instead, it is an administrative process resultin....
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.... Debtor. Accordingly, reliance is placed on Pratap Technocrats (P) Ltd. & Ors. vs Monitoring Committee of Reliance Infratel Ltd., 2021 SCC OnLine SC 569 at para 51. 52. It is also submitted that the Hon'ble Supreme Court in Vijay Kr. Jain v Standard Chartered Bank, (2019) 20 SCC 455 at para 23 had categorically upheld the bar of a director of a related party of a Corporate Debtor to have any right of representation, participation or voting in a meeting of the CoC. 53. R-2 further submits that the definition of the related party as under Sec. 2(54), IBC and its consequence in Sec. 21 has been laid down by the Hon'ble Supreme Court in Phoenix ARC v Spade Fin Services, (2021) 3 SCC 475. The Hon'ble Supreme Court held that those entities in the CoC, who are related parties, can often negatively affect the insolvency process. It further went on to hold that the objects and purposes of the Code are best served when the CIRP is driven by external creditors to ensure that related parties of the Corporate Debtor do not sabotage the CoC. 54. It is also stated that the claim of a related party, whether in the nature of loan or otherwise, should rank subordinate to the cla....
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....holders by failing to consider the proposal u/s 12A of the Code. As a result, shareholders who have invested about USD 22 million have lost their monies in toto. At the same time, creditors enjoy 100% returns, and R-2 enjoys a bonanza of having obtained assets worth about Rs. One thousand six hundred crores for Rs. 423 crores. Such acts of CoC do not amount to the maximisation of the value of the Corporate Debtor and its stakeholders. 62. It is also contended on behalf of the Appellant that given the ratio laid down in the case of Committee of Creditors of Essar Steel India v. Satish Kumar Gupta and Others (2020) 8 SCC 531, the immunity attached to the commercial wisdom of CoC lies in the assumption that the CoC has access to all the documents and relevant material and therefore applies its business mind and arrives at a decision. Therefore, in light of the fact that in the instant case, the material itself has been compromised and various members of the CoC were excluded from the committee till 14.12.2020, it is amply clear that the CoC enjoys no immunity in the instant case. Ist Respondents Submissions /(Resolution Professional/ R-1) 63. It is argued by R-1 that the Appe....
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....enquiry into the autonomy or commercial wisdom of the Committee of Creditors (CoC). 69. It is further contended by R-2 that the fact that the entire CIRP has been completed during the COVID period cannot be a ground for challenge to the Resolution Plan - Ramasamy Palaniappan Vs Radhakrishnan Dharmaraja, Company Appeal (AT)(CH)(INS) No. 19 of 2021 (paras 20, 21, 28). 70. The issue concerning Valuation has attained finality vide the judgment of this Tribunal dated 05.05.2021 in Company Appeal (AT)(CH)(INS) No. 19 of 2021, whereby this Appellate Tribunal has upheld the valuation order while further recording that the Valuation of Rs. 1600 Cr as claimed by the Appellant herein is unsupported by any evidence. 71. It is also argued on behalf of R-2 that a Resolution Applicant is not required to match the liquidation value while submitting a Resolution Plan. [Ref;Maharashtra Seamless Limited v Padmanabhan Venkatesh, (2020) 11 SCC 467 at paras 27-30] & [State Bank of India v M/s Accord Life Spec Pvt. Ltd., (2020) SCC OnLine SC 554 at paras 3 and 4]. 72. It is further contended that Appellant's argument regarding conflict of interest of Respondent No. 2 and violation under S....
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....tors from the entire decision-making process. c) CoC has not considered the OTS DT. 21.1.2021. d) The approved resolution plan discriminates between the related party unsecured financial creditors with other unsecured financial creditors. e) The estimate of the Fair Value and Liquidation Value of the Corporate Debtor is computed without physical verification of the Corporate Debtor's assets. Therefore, the entire valuation process of the Corporate Debtor is in total disregard of the Regulations. f) The Resolution Applicant is disqualified under Section 164 (2) (b) of the Companies Act 2013 hence ineligible under Section 29 A (e) of the Insolvency and Bankruptcy Code to submit a Resolution Plan. g) The COC does not approve the revised Resolution Plan. 76. Based on the pleadings of the parties following issue arises for our consideration ; Whether the approved Resolution Plan contravenes Section 30 (2) and Sec 61(3) of the Insolvency and Bankruptcy Code 2016? 77. The Appellant contends that the approved Resolution Plan is in contravention of section 30 (2) and Sec 61(3) of the Insolvency and Bankruptcy Code 2016. The App....
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....rify the assets. It is an admitted fact that the same has not been done in the instant case. (h) Assuming that the physical verification process can be delegated, Rule 8(2) of the Companies (Registered Valuers and Valuation) Rules, 2017 mandates that a Registered Valuer can only obtain inputs from other Registered Valuers. It further mandates that such inputs and particulars of the other Valuer must be mentioned in the Valuation Report. The relevant provisions are extracted below: "Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 35. Fair value and Liquidation value (1) Fair value and liquidation value shall be determined in the following manner:- (a) the two registered valuers appointed under regulation 27 shall submit to the Resolution professional an estimate of the fair value and of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor; (b) if in the opinion of the Resolution professional, the two estimates of a value are significantly d....
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.... (f) inspections and/or investigations undertaken; (g) nature and sources of the information used or relied upon; (h) procedures adopted in carrying out the valuation and valuation standards followed; (i) restrictions on use of the report, if any; (j) major factors that were taken into account during the Valuation; (k) conclusion; and (l) caveats, limitations and disclaimers to the extent they explain or elucidate the limitations faced by Valuer, which shall not be for the purpose of limiting his responsibility for the valuation report." (i) Therefore, the statutory provisions categorical state that Physical Verification must be done before completing the Valuation Process. The provisions also clearly state that the report must include the nature of the inputs and particulars of the registered Valuer. (j) Further, Regulation 27 read with Regulation 35 also mandates that two Registered Valuers value the Corporate Debtor's assets. It is an admitted fact that the two Registered Valuers appointed by the Resolution Professional did not value the non-core assets of the Corporate Debtor. The Resolution Profession....
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....tion) Rules, 2017 mandates explicitly that the conduct of Valuation would require the production of a detailed valuation report. The Rule also provides a list of mandatory contents that must find a place in the Valuation Report. Thus, it is clear that the production of a detailed valuation report to the CoC is a sine qua non of a valid valuation exercise under the Insolvency and Bankruptcy Code. (o) Furthermore, both Regulation 35 and Rule 8 state that Valuation must be conducted per internationally accepted valuation standards. This will not be verifiable if the detailed valuation report is not provided. The legislative intent will be defeated if the IRP/RP can bypass this requirement by circulating raw numbers without evidence of the Valuers' practices in arriving at their valuation report. (p) Appellant contend that the Resolution Professional has hoodwinked the CoC by conducting an illegal, improper and mala fide valuation process. This has materially affected the Commercial Wisdom of the CoC and, in any event, the mere fact that the CoC had considered the issues and decided to brush it aside cannot set right statutory violations apparent on the face of th....
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....is invited to the Minutes of the 2nd meeting of the CoC held on 06.08.2020, which starts at page No.63 of Volume I of the 1st Respondent's reply compilation. The issue about the valuers was discussed by the CoC as Agenda item No. A4 on page 66. 7. So far as the appointment of the third Valuer is concerned, the attention of this Appellate Tribunal was invited to the minutes of 6, and 7 meetings of the CoCs wherein this Respondent duly apprised the members about the need for the appointment of a third Valuer by Regulations 35. Agenda Item No. A5 ,Sl. No 7, on page 135 and Agenda Item No.A3 on Page 142, respectively. 8. This Respondent arrived at the fair value and liquidation value on the average of the two closest values as per Regulation 35 (c) provisions. In this connection, the attention of this Hon'ble Tribunal is also invited to the impugned Order, which deals with the valuation issue at length from paragraphs 74 to paragraph 84. An argument is raised that the two valuers who were initially appointed did not value the total assets of the Corporate Debtor and had only valued the core assets of the Corporate Debtor. 9. The reference to ....
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....btor, the Resolution Professional relied on the judgement of this Appellate Tribunal in Company Appeal AT (CH) (Ins) No. 19 of 2021. The proceedings of Company Appeal (AT) (CH) (Ins) No. 19 of 2021 pertains to an order dated 23 December 2020 passed by the Adjudicating Authority under Section12 (2) of the Code, excluding the period commencing from 5 May 2022 to 31 October 2020 to provide the benefit under Regulation 40 C. The said Appeal was preferred at the instance of one shareholder, namely, Mr Ramasamy Palaniappan. It did not pertain either to the statutory violations in the process of CIRP and the Resolution Plan or the eligibility of the 2nd Respondent to act as a resolution applicant. Merely because the said Mr Ramasamy Palaniappan was unable to produce any evidence to show the actual Valuation on an earlier occasion, the Appellant cannot be prevented to produce such evidence to establish the illegality in the CIRP. 80. It is pertinent to mention that the Approval of the Resolution Plan by the COC is directly attributable to the fact that the COC was not properly apprised of the actual value of the Corporate Debtor's assets. The choices of the valuers by the IRP have b....
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....Valuation to the COC. Moreover, the details of the purported "Associates" of the 'Registered Valuers' have not been disclosed, and the COC has neither considered nor approved the said Associate Valuers. Conveniently, the valuation reports have not been disclosed to date, and only the Valuation is sought to be accepted as gospel truth. Therefore, the Valuation furnished to the COC is in utter violation of Regulation 35 (1) (a) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and contrary to Rule 8 of the Companies (Registered Valuers and Valuation) Rules, 2017. 83. Further, it is necessary to mention that many members of the COC raised concerns relating to the Valuation. Even in the 7th meeting of the COC, concerns were raised as to the fact that the Resolution Plan values the Corporate Debtor at a rate that is significantly lower than the already paltry Valuation arrived at by the IRP. Moreover, the RP himself admitted the aforesaid fact in the aforesaid meeting. 84. The Appellant further contends that it has come to notice that one of the registered Valuers appointed during the CIRP viz, Mr Vikas Agarwal,....
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....ime, there was no statutory bar for this Adjudicating Authority to initiate CIRP in relation to a Company. However, it is seen that the Application for initiation of CIRP was filed by the Financial Creditor as early as in the year 2019 itself and during that point of time there was no cases of Covid in India and the matter was heard in detail and the orders were reserved during March 2020. While this being the fact, the contention of the Learned Senior Counsel that only because of Covid they were not able to settle the creditors of the Corporate Debtor, does not hold much water. Even though, the Valuation as arrived at by the valuers may not be acceptable to the erstwhile promoters / Directors of the Corporate Debtor, it cannot give them a right to challenge the same before this Adjudicating Authority on ostensible grounds. 90. It is significant to note here that, a statutory provision regulating a matter of practice or procedure will generally be read as directory and not mandatory. Thus, even though the objectors to the Resolution Plan have alleged many procedural irregularities in relation to the conduct of the proceedings in relation to the CoC; however those objectors....
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.... violation of the corporate debt assets. 88. However, the learned Adjudicating Authority/NCLT's observation that 'A statutory provision regulating a matter of practice or procedure will generally be read as a directory and not mandatory is erroneous. Compliance with statutory requirements in regulating a matter of practice and procedure are mandatory.' The Tribunal is a creature of statute, and by interpretation, it cannot dilute the statutory compliances. 89. Exclusion of unsecured creditors from the entire decision-making process; a) The Appellant contends that IRP had received claims from a large set of Unsecured Financial Creditors. Still, the IRP/RP did not proceed to accept or reject the Unsecured Financial Creditors' claims, which resulted in excluding the said unsecured creditors from the entire decision-making process. Non-Publication of Form-G As Per Regulation 36A(2) (iii) of the IBBI Regulations for Corporate Persons, 2016 90. As per Regulation 36A(2)(iii), the RP shall publish 'Form-G' on the Corporate Debtors and IBBI websites. This would ensure adequate publicity to all prospective Resolution Applicants. This was admittedly not done....
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....ection 61 (3) of the IBC on the ground, namely, there has been a material irregularity in exercise of the powers by Resolution Professional during the Corporate Insolvency Resolution period. 99. Further, it is necessary to mention that Regulation 36 A of CIRP Regulations mandates publication of Form-G at the earliest, not later than the 75th day from the insolvency commencement date, from interested and eligible prospective resolution applicants to submit Resolution Plans. 100. Non-compliance with the above regulatory provision is admitted. It is also important to point out that this entire CIRP was conducted during lockdown when the world faced Covid19 Pandemic. At that time, most people avoided reading the newspaper under the apprehension of Covid infection. So the publication of 'Form-G' for inviting Expression of Interest was essential. It is also important to point out that the Government of India also brought some amendments in the Code considering the impact of the Pandemic. Relevant Regulation about inviting 'EOI' is given below for ready reference; Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 201....
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....the invitation under clause (b) of sub-regulation (3). (6) The expression of interest received after the time specified in the invitation under clause (b) of sub-regulation (3) shall be rejected. (7) An expression of interest shall be unconditional and be accompanied by- (a) an undertaking by the prospective resolution applicant that it meets the criteria specified by the committee under clause (h) of sub-section (2) of Section 25; (b) relevant records in evidence of meeting the criteria under clause (a); (c) an undertaking by the prospective resolution applicant that it does not suffer from any ineligibility under Section 29-A to the extent applicable; (d) relevant information and records to enable an assessment of ineligibility under clause (c); (e) an undertaking by the prospective resolution applicant that it shall intimate the resolution professional forthwith if it becomes ineligible at any time during the corporate insolvency resolution process; (f) an undertaking by the prospective resolution applicant that every information and records provided in expression of interest is true and correct and discover....
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....ution plan that R-2 is the founder and Managing Trustee of the said 'Sri Balaji Vidyapeeth'. b) However, "Sri Balaji Vidyapeeth" was a prospective Resolution Applicant and found ineligible was wholly suppressed from the CoC. Therefore, IInd Respondent being the Managing Trustee of Sri Balaji Vidyapeeth, has proceeded to submit the Resolution Plan by competing with the same Trust by taking advantage of his fiduciary position within the meaning of Section 88 of the Indian Trust Act, 1882. Since the said Trust has already been declared ineligible, R-2 cannot be permitted to act as its alter ego in implementing the Resolution Plan and attain any financial advantage or gain, which is barred under Section 88 of the Trust Act. c) IInd Respondent /SRA is the Managing Director of 'MGM Healthcare Private Limited'. The Resolution Plan states that 'MGM Healthcare' is looking forward to setting up new hospitals in the State of Tamil Nadu envisages to expand pan India and becoming a leading hospital chain in India. At the same time, IInd Respondent proposes in the Resolution Plan to convert the 'Coimbatore property' of Corporate Debtor into a hos....
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.... that there is a violation of Sec. 88, the only consequence is that the trustee has to hold such advantage to the benefit of the Trust, and it is for the Trust to claim such an advantage gained. It does not in any way attract disqualification under Sec. 29A, IBC. It does not impact the trustee in the capacity of a Director in a Company under Section 164(2), Companies Act, 2013. Sec. 29A(e), IBC is restricted to the Companies Act alone and is not applicable in the case of the Trust Act. Thus, assuming but not admitting that Respondent No.2 has violated Sec.88, Trust Act, it has no impact on his eligibility as a Director under Sec. 164 of the Companies Act or as a Resolution Applicant under the IBC. f. Lastly, without prejudice and without admitting, even if it is presumed that there is a violation of Sec. 88, Trusts Act, still, Sec. 29-A(e) of IBC does not debar Respondent No. 2 in any manner to file the Resolution Plan. The consequences of violation of Sec. 88, if any, would be what is provided under the Trusts Act alone and that too, at the instance of the concerned Trust and not the Appellant. Further, the Resolution Plan does not, in any manner, get affected. The Plan d....
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.... is extracted hereunder for ready reference. "Section 88. Advantage gained by fiduciary. Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained." 107. The Appellants counsel argues that he is entitled to challenge the legality of the Resolution Plan and the eligibility of the 2nd Respondent to act as a Resolution Applicant. The Appellant is not concerned about how the 2nd Respondent discharges his fiduciary obligations concerning the said Trust or other entities. However, when the 2nd Respondent intends to act as a Resolution Applicant, the Appellant is well within his rights to point out the resolutions Plan's illegalities since the Code requires that a Resolution Plan shall not contravene any of the pr....
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....Such an interpretation is contrary to the explicit provisions of Section 88 of the Indian Trusts Act. Therefore, it is incorrect to say that the 2nd Respondent has not gained any advantage from the charitable Trust. 112. The case on hand squarely falls within the ambit of Section 88 of the Indian Trusts Act, and as such, the Resolution Plan is illegal. Since the said 'Sri Balaji Vidyapeeth' has already been declared as ineligible, the 2nd Respondent cannot act as its alter ego in implementing the Resolution Plan and attain any financial advantage or gain is barred by Section 88 of the Indian Trusts Act. 113. Objections about 2nd Respondents disqualification as a director under Section 164 (2) (b), Companies Act, 2013 and consequently under Sec. 29A(e) of the Insolvency and Bankruptcy Code 2016. 114. The Appellant had submitted that IInd Respondent is a Director of a Company, namely, M/s International Aviation Academy Private Limited IAAPL (for brevity 'IAAPL'). It is seen from the audited financial statements of the said Company from 2010-11 to 2017-18 that a sum of Rs. 12,03,000/- has been collected as 'share application money pending allotment'. T....
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....read with Sec. 1(3) and relates to Rule 2(c)(viii) of the Deposit Rules and, therefore, applicable. d) Respondent No. 2's directorship, as per the Ministry of Corporate Affairs, Government of India website, still shows as active compliant. As long as a Director is an active compliant under the Companies Act, Sec. 29A(C), IBC, 2016 would not apply. As per Sec. 29A, IBC, the following persons are ineligible to be a Resolution Applicant: 1. is an undischarged insolvent; 2. is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949; 3. Or, an account of a corporate debtor [at the time of submission of the resolution plan has an account) under the management or control of such person or of whom such person is a promoter, classified as a non-performing asset under the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) (or the guidelines of a financial sector Regulator issued under any other law for the time being in force,) and at least one year has lapsed from the date of such classification till the date of commencement of th....
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....sed by the appellant was never raised before the Adjudicating Authority. In response to this objection, Learned Counsel for the appellant submits no estoppel against a statute. Section 61 (3) empowers the Appellate Tribunal to question irregularities and illegalities in the CIRP, including the Resolution Plan. The Resolution Plan being in rem, these questions fall within the exclusive purview of judicial review. These grounds cannot be eschewed from consideration on the simple ground that they were never raised before NCLT, as persons who were not before NCLT are also before this court. 118. The Ld Senior counsel for the Appellants, in response to the above submissions of Respondent No.2, regarding the disqualification of the 2nd Respondent, argued that the 2nd Respondent is a Director of M/s. International Aviation Academy Private Limited, and it is seen from the audited financial statements of the said Company for the period 2010-2011 to 2017-2018 that a sum of Rs. 12,03,000/- has been collected as 'share application money pending allotment'. 119. It appears that the said sum has not been refunded, and as such, the same shall be treated as 'deposit' in terms....
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....ified from acting as a Director given Section 164(2)(b) of the Companies Act, 2013. 125. It is correct to say that the IRP/RP should be concerned as to whether a Resolution Application submitting his EOI is eligible as per the provisions of Section 29-A of the Code. Apparently, in the case on hand, the 1s Respondent has not properly verified the eligibility of the 2nd Respondent and has acted solely based upon the false declarations given by the 2nd Respondent. 126. However, the Appellant is well within his rights to question the legality of the CIRP and the Resolution Plan. 127. Based on the above discussion, it is clear that the 2nd Respondent is disqualified as a director under section 164 (2) (b), Companies Act, 2013 and consequently ineligible to submit a Resolution Plan under Sec. 29A(e) of the Insolvency and Bankruptcy Code 2016. The Revised Resolution Plan was never placed before the AA/NCLT for final Approval. Admittedly, the last CoC meetings were conducted on 22.01.2021, and it is unknown how the Resolution Plan dated 25.01.2021 could have been approved by the CoC [Pg. 1 of Addl. Documents-Vol. 1 (Resolution Plan)]. (i) It is seen from....
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....considering the fact that they will be getting the full amount. Resolution Professional assured them and other COC members who have voted in favour of the Resolution Plan that there will not be any changes in the amount provided for assenting financial creditors. RP further apprised that the RA has given an undertaking that RA will comply with Section 30 (2) of IBC and there will not be any change in the amount provided in the resolution plan for assenting creditors." 130. On perusal of the minutes of 9th COC, it is clear that COC did not finally approve the Resolution Plan on 22 January 2021. In this meeting, COC sent back the Resolution Plan to the Resolution Applicant for further revision based on the CoC Resolution. This revised Resolution Plan dated 25 January 2021 was never sent for Approval before the COC. 131. The Resolution Professional's statement that 'the revised Resolution Plan was approved at the 9th COC meeting' is incorrect. Although the Resolution Plan was allegedly approved on 22 January 2021, it is not the Revised Resolution Plan. Instead, the Resolution Plan was further modified based on the CoC resolution Dt.22.1.2021. But the final Revised Resolution Pla....
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....o convert the Corporate Debtor into a hospital, which will put numerous employees, vendors, and other stakeholders at risk. (b) Furthermore, the operation costs attached to such a large-scale conversion have also not been considered. The Promotor has placed a request with the applicant Creditor, the RP, and other CoC members to consider the financial proposal floated by M/s. Deutsche Bank by way of facility amount of Rs. 350 crores and other sources of funds. However, the same was never placed for consideration in the COC meetings. (c) The above proposal would have effectively maximised the value of the Corporate Debtor as a going concern. It would ensure that all classes of financial creditors are completely accounted for immediately. Other Classes of creditors would have also taken care of in full either immediately or in due course of functioning as a going concern. However, the 1st Respondent has failed to consider the request of the Promoters to call for a meeting of the Committee of Creditors to consider the application under Section 12A. (d) The Proposal was placed before the Applicant Financial Creditor seeking for an opportunity of the Promoter g....
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....several other stakeholders were also dismissed by way of the impugned order, primarily on the ground that their respective claims were to be settled under the Resolution Plan. 136. In response to the Appellants submissions regarding non-consideration of application for one-time settlement of Appellant under Sec. 12A, IBC, 2016, IInd Respondent (RA) contends that; a. The Ld. Adjudicatory Authority vide its impugned judgment had categorically considered the Appellant's argument regarding non-consideration of Sec. 12A application and held that the same was only placed before the CoC that too when the Resolution Plan was being put to the vote. It also noted the disclaimer in the term sheet issued by the Deutsche Bank, holding the whole application to be an eye-wash and dilatory tactics to delay the CIRP process b. The 9th CoC meeting dated 22.01.2021, while dealing with the application under Sec.12A, rejected to consider the same as it was placed right before the Resolution Plan was being put to the vote and had approved the Resolution Plan 87.39% voting share. c. Sec. 12A application and the Deutsche bank term sheet was issued only at a belated stage ....
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....eeting, when the resolution plan of the resolution applicant was about to be put to vote. Further, it is also seen that the petitioning Creditor viz. Tourism Finance Corporation of India was also kept in the dark about the 12 A proposal by the promoters and also flagged an issue stating that the letter has been addressed to the COC and not to them......." Further, act para 88, the Hon'ble NCLT observe that; "88. Thus, it is seen that the proposal as projected by the learned senior counsel for the promoters to be made under section 12 A, seems to be only an eyewash and a dilatory practice to delay the process of CIRP in relation to the corporate debtor and that the fact that the proposal has been mooted only during the eleventh hour is to stall the Resolution Plan as moved by the Resolution Applicant......." 139. The Resolution Professional further stated in the affidavit that "this clearly goes to show that neither the paper submitted by the promoter was in any way near to any proposal for consideration under section 12 A nor was it placed before COC with any bonafide intention." 140. Based on the pleadings of the parties, it is clear that the COC meeting was not ....
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....jected the settlement offer in its 9th meeting. This statement is also not as per the minutes of the 9th COC meeting. It appears from the minutes of the 9th COC that only a Resolution Plan was discussed in that meeting. After that, the Resolution Plan was sent back to the resolution applicant by CoC for reconsideration and revision. In the 9 COC meetings, no discussion about the settlement offer occurred. It is essential to mention that after admission of the petition and formation of the Committee of Creditors, Section 12A application for withdrawal could only be accepted if the CoC approves the proposal with a 90% vote share. It is undisputed that COC, under its commercial wisdom, had full liberty to either accept or reject the settlement offer. But consideration of the settlement offer is essential. At this juncture, this tribunal "Worth recalls and recollects" the judgement of Hon'ble 3 Member Bench of this Tribunal in Company Appeal (AT) (Ins) No.91 of 2019 dated 6 September 2019 between Shaji Purusothaman v Union Bank of India and others (reported in MANU/NL/0438/2019) whereby and whereunder at paragraph 9 it is observed that; "if an application u/s 12 A is filed by ....
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....dment was brought to ensure that creditors with "different pre-insolvency entitlements" were not treated equally under the IBC. iv. Para 131 of the Supreme Court's Judgment in Committee of Creditors of Essar Steel India Ltd. Satish Kumar Gupta, (2020) 8 SCC 531 states explicitly that the Resolution Plan may consider different classes of creditors mentioned in Section 53 of the IBC. Accordingly, Section 53 does not treat related parties as separate creditors. v. In the first place, the law has to permit a distinction to be explicitly created, and this distinction should be based on intelligible criteria. The discrimination should have a nexus with the object sought to be achieved. In the present case, the IBC does not provide for a separate classification of Related Party for payments under the Resolution Plan. Even otherwise, assuming without admitting, the CoC can permit this sub-classification even though the IBC doesn't provide for the same. Such classification must still meet the test of reasonable nexus with the object to be achieved. [Ref; Hiralal P. Harsora and Others v. Kusumn Narottamdas Harsora and Others, 2016) 10 SCC 165 @Pgs. 19-56] v....
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....and of the RP before the Ld. Tribunal which the Ld. Tribunal accepted was that it was the prerogative of the Resolution Applicant to distribute the funds in a manner of his choice and that the IBC did not prohibit treating related parties as a separate class for this purpose. This stand of the RP is also reflected in the Reply filed before this NCLT. Ist Respondent's contention at para 24 of its Reply that there is no provision under the IBC or Regulations to pay a related party in parity with the unrelated party is wrong and misconceived. Nothing under the IBC permits the RP or RA to discriminate against the related parties. This argument is best suited to say that the RP/CoC had put the cart before the horse. It was for the RP to ensure compliance of the provisions of the IBC and the CoC to apply its mind on protecting all stakeholders, both of which have not taken place in the present case, resulting in the Resolution Plan being violative of the IBC and Article 14 of the Constitution. x. Reliance on Pratap Technocrats Pvt. Ltd. v. Monitoring Committee of Reliance Infratel Limited and Another, 2021 SCC OnLine SC 569 is misplaced because the judgment does not decide t....
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....ourt in Phoenix ARC, the purpose is to ensure that external creditors drive the CIRP. Following statutory provisions clarify that related party' is a class in itself. Accordingly, a related party is prohibited from acting in any of the following capacities in a CIRP: Particulars Provisions Cannot be part of Committee of Creditors Sec. 21, IBC, 2016 Cannot be a Resolution Applicant Sec. 29A, IBC, 2016 Cannot be an authorized representative Reg. 4A, IBBI (Insolvency Resolution Process for Corporate Persons) Reg, 2016 Cannot be a liquidator Reg. 3, IBBI (Liquidation Process) Reg. 2016 Cannot be a part of the governing board Reg.9, IBBI (Information Utilities) Reg, 2017 Cannot act as a professional Reg. 7, IBBI (Insol. Professionals) Reg. 2016 In case there any only related parties as financial creditors, the CoC would be formed of the Operational Creditors Reg. 16, IBBI(Insolvency Resolution Process for Corporate Persons) Reg. 2016 150. The underlying object is that the involvement of a related party in the CIRP in any capacity is seen as giving unfair benefit to the Corporate Debtor. In short, a related party is treated in the sa....
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....9; prohibits the promoters from gaining, directly or indirectly, control of the 'Corporate Debtor' or benefiting from the 'Corporate Insolvency Resolution Process' or its outcome. 156. The NCLAT in Gail India Ltd.' Has held that there is no embargo for the classification of Operational Creditor(s) into separate/different classes for deciding how the money is to be distributed to them by the Committee of Creditors' because of the fact, they do have; the amount to be paid; the quantum of money to be paid, to a specific category or the incidental category of creditors, of course, nicely balancing the interests of the 'Stakeholders' and, the Operational Creditors', as the case may be. 157. Thus, it is well-settled that a 'related party' can be treated as a separate class independent of an unrelated party. Such 'related party' ought to be equated with the promoters as 'equity shareholders as partners. 158. On the facts of the present case: a. The CoC had the discretion to decide regarding payment of an admitted claim to a related party depending on its relationship with the Corporate Debtor. The facts of the case show that the to....
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....tatutory function which is entrusted to the CoC, under sub-section (4) of Section 30. The CoC may approve a resolution plan with a voting percentage of not less than 66% of the voting shares of financial creditors after considering: (i) its feasibility and viability; (ii) the manner of distribution proposed having regard to the order of priority amongst creditors laid down in Section 53(1) IBC, including priority and value of the security interest of the secured creditors; and (iii) such other requirements as may be specified by the Insolvency and Bankruptcy Board of India. In other words, the decision to approve a resolution plan is entrusted to the CoC. 36. The Court, also held (in para 62) that the legislative history of IBC indicated that: (K. Sashidhar case [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ) 222] , SCC p. 188) "62. ... there is a contra-indication that the commercial or business decisions of the financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority". "41. The observations in para 73 of the decision in Essar Steel India Ltd.....
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....ta, (2020) 8 SCC 531: (2021) 2 SCC (Civ) 443] , SCC p. 606, para 88) "88. Fair and equitable dealing of operational creditors' rights under the said regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operational creditors are given priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors." 160. It is pertinent to mention that in the case mentioned above Hon'ble Supreme Court has held that ....
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....hoenix ARC (P) Ltd. v. Spade Financial Services Ltd., (2021) 3 SCC 475: (2021) 2 SCC (Civ) 1: 2021 SCC OnLine SC 51 at page 518 "81. These objects underscore the composition of the CoC, guided by Section 21 IBC. The objects and purposes of the Code are best served when the CIRP is driven by external creditors, so as to ensure that the CoC is not sabotaged by related parties of the corporate debtor [ Report of the Insolvency Law Committee, March 2018, p. 23, para 1.25.] . This is the intent behind the first proviso to Section 21(2) which disqualifies a financial creditor or the authorised representative of the financial creditor under sub-section (6) or sub-section (6-A) or sub-section (5) of Section 24, if it is a related party of the corporate debtor, from having any right of representation, participation or voting in a meeting of the committee of creditors. 82. Since the IBC attempts to balance the interests of all stakeholders, such that some stakeholders are not able to benefit at the expense of others, related party financial creditors are disqualified from being represented, participating or voting in the CoC, so as to prevent them from controlling the CoC t....
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....ranting exemption in respect of income tax liability that may crystalize in future. Thus clause 7.5 of the approved resolution plan cannot be accepted. In the circumstances, to give justice to operational creditors, we think it appropriate to direct the Resolution Professional to modify the resolution plan in the light of observation given in the body of the judgement. We further direct that "the unsecured debt of related party which is intragroup debt will be treated as an equity contribution rather than as an intragroup loan, with the consequence that the intragroup obligation will rank lower in priority than the same obligation between unrelated parties". Thus the intra group debt given by Jya Finance & Investment Co. Ltd., a related company of the corporate debtor be classified at par with other equity shareholder and partners as provided in water fall mechanism provided in Sec. 53(1)(h) of the Code. It is further directed that all the operational creditor should be treated equally without being also classified by their ageing, i.e., without any discrimination of period of their outstanding dues. We further direct that resolution plan may be modified ....
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....ional to place the modified resolution plan of the 3rd Respondent before the Committee of Creditors for its approval within fifteen days and Committee of Creditors in its turn will consider the viability, feasibility and financial matrix of the modified resolution plan submitted by the 3rd Respondent - 'Rajasthan Liquor Ltd.' and vote accordingly. While exercising voting share, the Committee of Creditors shall keep in mind that the earlier resolution plan was approved by them. 7. Resolution Professional thereafter will place the matter before the Adjudicating Authority for order under Section 31 of the I&B Code. This total exercise to be completed by 15th January 2019." 166. Based on the observations of this Appellate Tribunal in the Jya Finance (supra), it is clear that this Appellate Tribunal has not accepted the NCLT's interpretation treating related party Financial Creditors at par with equity shareholders. But this Appellate Tribunal decided the appeal that in the modified Resolution Plan, all the Financial Creditors have been treated equally. Similarly, no discrimination has been made between one or another Operational Creditor. 167. Judgement of Hon'ble ....
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....ate; (d) financial debts owed to unsecured creditors; (e) the following dues shall rank equally between and among the following:- (i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; (f) any remaining debts and dues; (g) preference shareholders, if any; and (h) equity shareholders or partners, as the case may be. (2) Any contractual arrangements between recipients under sub-section (1) with equal ranking, if disrupting the order of priority under that sub-section shall be disregarded by the liquidator. (3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction. Explan....
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....icipate in the COC. After completion of the CIRP and after approval of the Resolution Plan, if any amount is allotted to related party financial or operational creditors, it would not impact the CIRP. 172. It is also necessary to point out that code is a self-contained code. Therefore, any provision that restricts related-party Financial Or Operational Creditor actions is stated in the code. Thus, the Adjudicating Authority / NCLT/NCLAT cannot further limit the rights of Related Party Financial or Operational Creditors by way of interpretation. Furthermore, restrictions on the related party rights under CIRP under Code and Regulation are provided at different places. Therefore, its scope cannot be exceeded further by way of interpretation. 173. Thus, it is clear that IBC treats related parties as a separate category for specified purposes, excluding from the CoC under Section 21 and disqualifying them from being Resolution Applicants under section 29A. However, the IBC does not treat Related Party as a separate class for any other purpose. Therefore, a rationale nexus must exist for any classification between the object sought to achieve the classification and sub-classificat....
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....ngs in relation to the CoC will not be material when the objectors failed to establish prejudice caused to them in respect of the same is also erroneous. 179. Regulation 36(2) of CIRP Regulations provides the mandatory condition for publication of 'Form-G' on the Corporate Debtor's website and the website designated by the Board for the purpose. Non-publication of notices of Form G is a material irregularity in exercise of the powers by Resolution Professional during the Corporate Insolvency Resolution period. In the instant case, there has been a material irregularity in exercising the powers by Resolution Professional during the Corporate Insolvency Resolution Process. 180. Since the said Trust (Prospective Resolution Applicant) 'Sri Balaji Vidyapeeth' has already been declared as ineligible, the 2nd Respondent (SRA) cannot be permitted to act as its alter ego in implementing the Resolution Plan and attain any financial advantage or gain, which is barred by Section 88 of the Indian Trusts Act. 181. The Resolution Professional made an incorrect statement that the revised Resolution Plan was approved at the 9th COC meeting. The revised Resolution Plan was not a....